What is the yield-to-maturity of an Acme bond selling for $1,107.50 with 5 years to maturity, a 12 1/2% coupon, and semiannual compounding?
A) 10.36%
B) 11.29%
C) 9.74%
D) 10.20%

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) of a bond can be calculated using a financial calculator or spreadsheet software by inputting the present value (price of the bond), future value (par value), payment (coupon payment), and number of periods (years to maturity times the number of compounding periods per year). In this case, with the bond selling for $1,107.50, a 12.5% annual coupon rate, semiannual compounding, and 5 years to maturity, the correct YTM calculation results in approximately 9.74%. This calculation takes into account the semiannual coupon payments and the bond's price above its par value, leading to a YTM that is lower than the coupon rate.

What Is the Yield-To-Maturity of an Acme Bond Selling for $1,107.50